FMi Updates
The Department of Labor issues final rule on 401(k) Fee Disclosure. 408(b)(2) and 404(a)(5) which covers fee disclosure to Plan Fiduciaries and Plan Participants respectively, brings full transparency of fees to light. What does this mean for Employers and Employees...
1. Employers:
a. Responsibilities:
i. Employers must ask any company that provides services to the plan these questions:
1. What services will you provide for the plan?
2. What is the cost for these services?
3. Are you compensated in any other way?
4. Will you provide all necessary fee disclosures?
ii. Employers are responsible for making sure the fees being charged to the plan are reasonable (this does not mean they have to be the cheapest, simply competitive and fair).
1. Typically this will involve an RFP every few years or some sort of plan benchmarking service.
b. What to expect:
i. Most covered service providers will disclose the list of services provided and the corresponding fees to the employer through their service agreement, contract, or some other notice.
ii. It is the covered service provider's responsibility to provide all compensation required to be disclosed, but it will always be the employer's responsibility to ask.
2. Employees:
a. Responsibilities:
i. Employees have no responsibility when it comes to fee disclosure, but it would be easier for them if they understood what to expect.
ii. Employers commonly take on the legal role of Plan Administrator and it is the Plan Administrator's responsibility to ensure all fee disclosure requirements are met for the employee's sake. This is similar to the responsibilities of testing and 5500 filing and these duties are usually outsourced to a Third Party Administrator or Plan Provider. We expect the same to happen for employee fee disclosure. In other words, employers are hiring their current providers to do this on their behalf.
b. What to expect:
i. Most, if not all, fee disclosures will appear on the employees quarterly benefit statement. Anything not on the quarterly statements will be given in the form of an annual notice similar to the Safe Harbor or QDIA notices.
ii. Many fees which may or may not have been on the quarterly statement before will now be very conspicuous:
1. Asset based fees will now be a line item and will be shown as a percentage and as a dollar amount per $1,000.
a. For example: Advisor Fee - 0.50% or $5.00 per $1,000
2. Dollar based fees or fixed fees will be shown as a line item with a brief description and the dollar amount charged to the employee.
3. Any fees billed to the employer are not required to be disclosed on the employees' statements.
iii. While the fees have not changed, employees may just become aware of them. We expect the employees to have many questions. So be prepared.
3. When will this happen?
a. Employer fee disclosure is required by July 1,2012
b. Employee fee disclosure is required by August 30, 2012 (for calendar year plans) and will be seen on the 3rd quarter statements.
WANT TO LEARN MORE?
View the Employee Benefits Security Administration Rule
View the Changes to Final Fee Disclosure Rule
